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Mergers in nonrenewable resource oligopolies and environmental policies

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  • Benchekroun, Hassan
  • Breton, Michèle
  • Chaudhuri, Amrita Ray

Abstract

We examine the profitability of horizontal mergers within nonrenewable resource industries, which account for a large proportion of merger activities worldwide. Each firm owns a private stock of the resource and uses open-loop strategies when choosing its extraction path. We analytically show that even a small merger (merger of 2 firms) is always profitable when the resource stock owned by each firm is small enough. In the case where pollution is generated by the industry’s activity, we show that an environmental policy that increases the firms’ production cost or reduces their selling price can deter a merger. This speeds up the industry’s extraction and thereby causes emissions to occur earlier than under a laissez-faire scenario.

Suggested Citation

  • Benchekroun, Hassan & Breton, Michèle & Chaudhuri, Amrita Ray, 2019. "Mergers in nonrenewable resource oligopolies and environmental policies," European Economic Review, Elsevier, vol. 111(C), pages 35-52.
    • Handle: RePEc:eee:eecrev:v:111:y:2019:i:c:p:35-52
    DOI: 10.1016/j.euroecorev.2018.08.008
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    Cited by:

    1. Choi, Pak-Sing & Espinola-Arredondo, Ana & Munoz, Felix, 2020. "Mergers as an environmental ally: Socially excessive and insufficient merger approvals," Working Papers 2020-1, School of Economic Sciences, Washington State University.
    2. Choi, Pak-Sing & Espínola-Arredondo, Ana & Muñoz-García, Félix, 2022. "Environmental policy helping antitrust decisions: Socially excessive and insufficient merger approvals," Resource and Energy Economics, Elsevier, vol. 67(C).
    3. Dai, Miao & Benchekroun, Hassan & Long, Ngo Van, 2022. "On the profitability of cross-ownership in Cournot nonrenewable resource oligopolies: Stock size matters," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    4. Kheiravar, Khaled H, 2019. "Economic and Econometric Analyses of the World Petroleum Industry, Energy Subsidies, and Air Pollution," Institute of Transportation Studies, Working Paper Series qt3gj151w9, Institute of Transportation Studies, UC Davis.

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    More about this item

    Keywords

    Mergers; Horizontal Mergers; Cartels; Nonrenewable Resources; Natural Resources; Environmental Policy; Competition Policy; Antitrust;
    All these keywords.

    JEL classification:

    • Q39 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Other
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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